UK universities face growing financial divide

Between 2024 and 2025, some universities increased income by more than 60%, while others saw revenues fall by as much as 30%, underlining a widening divergence in sector performance.

Crucially, the report concludes that outcomes are driven less by institutional size, age or historical reputation, and more by leadership decisions – particularly the willingness to take bold, innovative approaches rather than rely on traditional models.

Among the key findings:

• A widening productivity gap, with increases in activity not translating into proportional gains in output per unit of resource. Top-performing institutions generate more than £127,000 income per staff member (up to £526,000 in one case), compared with less than £100,000 in lower-performing institutions.
• Widespread margin compression, as real-terms income declines outpace efficiency gains. Average marginal cost ratios above 1.0 indicate that growth across many universities is being accompanied by diseconomies of scale, with rising costs rather than improved efficiency.
• Financially weaker-performing universities rely heavily on one or two sources of income, while stronger institutions have more diversified revenue bases across multiple streams, making them more resilient to market volatility.
• There is significant variation in efficiency across institutions, suggesting that leadership and organisational choices – not just structural constraints – are driving outcomes. Institutions relying on repeated restructuring programmes are seeing diminishing returns and growing signs of organisational fatigue.
• Larger universities (with income above £1bn) have seen the fastest absolute growth, adding an average of £452m to annual income between 2020 and 2025, but scale alone does not ensure long-term resilience without effective operating infrastructure management. 

The report also warns that institutions relying on short-term fixes or awaiting policy intervention are among the most exposed to financial risk. It calls for earlier collaboration, clearer strategic choices, and more disciplined operating models.

Sir Nigel Carrington, Chair of Universities UK Transformation and Efficiency Taskforce, said: 

UK universities are facing sustained financial pressure alongside growing expectations, and the challenge now is how we continue to deliver excellence in teaching, research and civic leadership in that environment. 

This report moves from making the case for collaboration, to focusing on what enables it to become sustained institutional capability. It provides a frank assessment of the sector’s current position and introduces a framework to support universities in strengthening growth, productivity, scale, and efficiency, and in moving from short-term efficiency measures towards more durable structural effectiveness.”

Professor Amanda Broderick, Vice-Chancellor and President of UEL, said: 

Waiting for policy change is a high-risk strategy. Collaboration too often starts when options have already run out. The opportunity is to act early and build resilience by design. University leaders should not just be responding to external conditions – we should be taking decisions that actively shape the future. That means having the courage to innovate: to challenge established models, embrace new forms of delivery, and rethink how we create and sustain value. The sector cannot solve today’s challenges with yesterday’s models.”

Smita Jamdar, Partner & Head of Education at Shakespeare Martineau, one of the contributing partners to the report, said: 

What’s emerging is a shift from reactive change to more deliberate, structured transformation. Institutions that take an integrated approach – aligning strategy, operating model and collaboration – will have far greater flexibility and more options to shape their future.”

Over recent years, UEL has undergone a significant financial and institutional transformation, returning to stability after a period of deficit in 2018. Its income has more than doubled, becoming one of the largest London universities, and it is now one of only 15 UK universities without external borrowing.

Alongside this recovery, the University reports improvements in teaching quality, enterprise activity, rankings and student and research outcomes.

“Growth is not rescuing the sector – in some cases, it is actively making things worse,” added Professor Broderick. 

“The idea that universities can expand their way to success is fundamentally flawed. Rather growth can be a proxy for increased reach and significance of charitable objects, but must be addressed in partnership with operating model evolution. The institutions that are succeeding are making deliberate choices about where to grow, how to operate and who to collaborate with. The future will belong to those with the confidence and courage to innovate.” 

The authors conclude that the long-term sustainability of the UK higher education sector will depend less on expansion alone, and more on strategic choices around cost control, income diversification, and earlier collaboration, underpinned by integrated operating models that align efficiency, productivity, scale and growth.